Singapore growth shows up Hong Kong

Commentary: Stagnant population reveals governance failings

HONG KONG (MarketWatch) — GDP data can be a crude measure of performance, but the numbers give countries an idea of how they are doing and their position in the pecking order.

Last week, the Conference Board controversially predicted China’s GDP could surpass that of the U.S. by 2012, albeit on a purchasing-power-parity basis. There was no mention if any adjustment gets made when prices of property in Chinese cities top those in the U.S.?

Another eye-catching forecast was that Singapore is poised to overtake Malaysia’s economy after both countries issued new updates. Last week, Singapore said its GDP is expected to hit $210 billion in 2010 on the back of storming 15% growth this year, while Malaysia forecasts it will grow by 7% to a GDP of $205 billion.

Not only will these figures from little Singapore likely rankle proud Malaysians, they should also turn some heads in Hong Kong.

Hong Kong’s third-quarter GDP, announced last Friday, rose 0.7% quarter-on-quarter, enough for the government to modestly revise its full-year forecast to 6.5%. That will allow Hong Kong to keep its nose in front of its smaller neighbor, given its 2009 full year GDP was $210 billion.

But these relative growth rates suggest the “Lion City” will soon have bragging rights as the larger economy. This could hurt. Already Hong Kong has seen Shanghai overtake it in the GDP rankings after it rose 8.2% in 2009 to $218.3 billion. This caused much soul searching locally, given Shanghai’s ambitions to be China’s preeminent financial center.

As Hong Kong is located with all the natural advantages as a physical gateway to China’s massive economy, as well as acting as its de-facto international capital market, the burning question must be: Should it not be doing a lot better?

And when you dig beneath the GDP numbers, there are also questions about the quality or sustainability of Hong Kong’s growth. Latest GDP numbers came with a chorus of warnings from economists over a property bubble and rising inflation (the government upped its inflation forecast to 2.5% from 2.3%).

In terms of quality of GDP, a longstanding criticism of Hong Kong is its overreliance on the twin pillars of property and capital markets. Both of these have been fanned by exceptionally low interest rates and an anachronistic currency peg which outsources monetary policy to the U.S.

Another way of taking the pulse of the economy is to look at population growth, which might well be Hong Kong’s Achilles heel. If we look at Singapore, its population has increased by a healthy 20% since 2000 to just over 5 million today. Singapore also has had notable success making itself an attractive location for expatriates and international corporations. Initiatives to diversify the economy into high-tech manufacturing, wealth management, and more recently, casinos, have all added new levers to growth.

Hong Kong, by contrast, has seen its population rise just 5% in a similar period to 7 million. And since 2006, growth has slowed to 0.4% a year, indicating Hong Kong might even be leaking people. This will be somewhat embarrassing for the city’s Chief Executive Donald Tsang, who in 2007 said he wanted to increase Hong Kong’s population to 10 million in line with a vague idea that this would allow it to compete with big international financial capitals like London and New York.

But there has been little action to back up these grand plans or address complaints over pollution and high property prices. Instead, the Hong Kong government has gone back to what it knows best — trading parcels of land for easy revenue, most recently at record auction prices.

This means Hong Kong’s government coffers are in robust health, undoubtedly a nice position next to many governments around the world. It also has some of the highest commercial and residential property prices in the world.

But the population figures suggest Hong Kong is not such a great place to live. Last week, after five years in waiting, a minimum wage was introduced at the princely sum of 28 Hong Kong dollars ($3.61) an hour. Perhaps this may go some way to redress a Gini coefficient of 53.

Another indication all might not be well is the controversy playing out in the local press, in which a Catholic priest referred to tycoon Li Ka-shing as the devil, reflecting his displeasure at exploitative sales practices in the property market and the worsening rich-poor divide.

It looks as if Hong Kong needs some new ideas so its population and economy can grow — and not just the cash piles of government and vested interests of the few. Otherwise, instead of dreaming of moving closer to London and New York, the unpleasant reality will involve falling behind, not just Shanghai and Singapore, but perhaps Shenzhen too.

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